Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some residential real estate stocks to your portfolio but don't have the time or expertise to hand-pick a few, the iShares Residential Real Estate Capped ETF (NYSEMKT:REZ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on residential real estate stocks, sports a relatively low expense ratio -- an annual fee -- of 0.48%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This real estate stocks ETF has performed reasonably well, topping the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why real estate stocks?
Perhaps because there's a finite amount of it, real estate tends to increase in value over time, though not always in a straight line. Many real estate stocks are structured as real estate investment trusts (REITs), and offer an extra benefit, via their requirement to pay out at least 90% of their income in the form of dividends.

More than a handful of residential real estate stocks  had strong performances over the past year. Omega Healthcare (NYSE:OHI) increased 52% and offers a hefty 5.7% dividend yield. It recently owned or held mortgages on 477 assisted living facilities, skilled nursing facilities, and other specialty hospitals, spanning 33 states. In a presentation for investors in May, Omega Healthcare noted its "consistent and stable" free cash flow and manageable debt levels, along with its geographic diversification. Omega's third quarter featured operating revenue and earnings per share both up 19%. With its current and forward P/E ratios in the mid-20s, some see the stock as not quite a bargain these days.

Health Care REIT (NYSE:HCN) gained 15% and yields 4.6%, but that payout currently outstrips its earnings, which is cause for concern, unless earnings rise. The company closed its purchase of Sunrise Senior Living early this year, boosting its elder-care facility portfolio with units that command above-average rental rates. Obamacare will boost the number of people receiving medical care, and that can help REITs such as this one, which focus on health care properties. The REIT has grown aggressively via acquisitions, and now sports a market cap above $18 billion. That means, though, that its growth rate is likely to slow. Health Care REIT stock is actually down quite a bit in the past few months, making it more attractive to some.

Other real estate stocks didn't do as well last year, but could see their fortunes change in the coming years. Home Properties (NYSE:HME) gained 2% and yields 4.6%. It specializes in apartment properties and boasts a competitive return on invested capital. In its third quarter, physical occupancy rates for its core properties dropped a smidge, from 95.5% to 95%, and average monthly rental rates rose 3.2%. Revenue rose 3% and funds from operations, or FFO, gained 9%.

Ventas (NYSE:VTR) advanced 7%, and yields 4%. Led by Debra Cafaro since 1999, it's the leading seniors housing and health care REIT in the nation. Its third-quarter FFO gained 8%, while revenue rose 12%. Cafaro noted, "We also positioned Ventas to succeed in the future by maintaining strong liquidity through a highly successful bond issuance, by acquiring over a billion dollars in higher growth private pay assets, and by completing favorable lease extensions with our valued tenant Kindred Healthcare." Better still: "We are pleased to increase our full-year outlook, reflecting the strength of our business model and execution."

The big picture
Consider adding real estate stocks to your portfolio. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Health Care REIT. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.